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Foreign retailers face uphill battle in India

Members of India's Bharatiya Janata Party protest the proposed Foreign Direct Investment reform in the retail sector in Amritsar, Punjab, on Monday, Nov. 28, 2011.


The well-stocked, brightly lit supermarket found in capital cities the world over is nowhere to be seen in New Delhi, Mumbai or Chennai.

Beijing, Bangkok, Dubai and Lahore have them: Indian metropolises do not.

Instead, the affluent, urban shopper in the world's fastest-growing large economy after China is a forager for small luxuries and international comestibles among a multitude of corner shops and open vegetable markets.

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In theory, that should all be about to change. A federal cabinet decision last week to allow greater foreign participation in retail by the likes of Wal-Mart Stores Inc. , Tesco PLC, and Carrefour SA would transform India's scarcity economy, at least for a lucky few among its 1.2 billion people.

That is if the Congress-party led government does not cave to dissent, even among its allies, after signing off last week on the biggest economic reform for years.

The coming days are a test of Prime Minister Manmohan Singh's resolve and his government's unity. The country's ministers and business leaders are doing their best to convince farmers and small businesses of the benefits. They also say the reform will tame rising food prices.

India's $450-billion (U.S.) retail market should be one of the most attractive in the world and the liberalization to allow foreign multi-brand retailers majority ownership of local operations is long overdue, many say. Rajiv Kumar, the secretary-general of the Federation of Indian Chambers of Commerce and Industry, calls the local retail sector "backward," saying it lags behind the fast-paced growth of the rest of the economy.

One reason for the reform's urgency is the failure of Indian industrial groups to bring the big-store format home. Reliance Industries Ltd., Bharti Enterprises Ltd., Godrej Industries Ltd., and DLF Ltd., have had mixed success in their multi-brand retail ventures and have not made the required investment in badly needed supply chains, warehousing and refrigeration.

Foreign retailers may well scratch their heads as to why local firms have made so little progress and wonder whether they can do any better in a forbidding environment.

Reliance Fresh, an indigenous supermarket chain, had to shut its doors in the state of Uttar Pradesh after its stores were attacked four years ago. India's nation of small shopkeepers is a powerful political lobby. Combine that with fears of predatory foreign capital, a flood of low-priced Chinese goods and a xenophobia born of vested interests, and it's no wonder the reform remains a hard one to push through.

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Such entrenched opposition will mean that the orderly rollout of the box-store across India will simply not happen. Organized foreign-owned retail will be welcomed by only a handful of states. Three of the most likely are Delhi, Maharashtra and Punjab.

Foreign-owned retail's success will depend on adapting to, or overcoming, the local environment.

Decrepit, overwhelmed infrastructure in India's cities – especially choked traffic – mounts a challenge for consumer and supplier alike.

Bulk buying is alien to local shopping habits. Middle-class Indian families often send their staff on frequent, small purchase trips. The wealthier would sooner buy more expensive items in Dubai and Singapore than in their home cities. And mom and pop shops will put up a formidable fight. Their selection may be limited, but they extend credit and provide rapid delivery almost 24/7.

Right now the reform, and an estimated $20-billion in foreign investment, hangs in the balance.

That is partly the government's fault. Retail reform has been debated for 10 years, but selling economic policy is not politicians' strong suit.

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Encouraging moves to accelerate mining and power projects have also yet to bear fruit.

"We didn't get elected on that platform [of reform]" said Law Minister Salman Khurshid. "We never claimed the idea was reform. We didn't speak the language of reform."

A frightening global economy and slowing growth has convinced Delhi that it needs to dress up its shop window.

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